Copper industry in 2015
Let’s explore the outlook for the copper industry in 2015. Freeport-McMoRan (FCX), Southern Copper Corp. (SCCO), Rio Tinto (RIO), and BHP Billiton (BHP) are among the top ten copper producers in the world. FCX forms 4.22% of the Materials Select Sector SPDR ETF (XLB).
Copper demand in China and the addition of fresh copper production capacity are two of the most important drivers for the copper industry. However, Chinese consumption of base metals slowed down in 2014. The slowdown in the Chinese economy affected the demand for steel, aluminum, and copper. The above chart shows the plummeting growth rate in China’s economy.
The power sector is one of the largest consumers of copper in China. Plus, 2015 is the last year of China’s 12th five-year economic plan, which should improve copper consumption in China as companies rush to complete their projects.
The Chinese government is expected to boost its economy through stimulus packages, which should help the Chinese copper demand. However, global economic growth might come down this year due to a massive fall in crude oil prices. Any downward revision in global economic growth will be a key risk for copper industry.
Supply side concerns
Copper production is expected to exceed its consumption in 2015. According to estimates, more than 1.5 million tonnes (or Mt) of fresh copper supply may come online this year. The increase in the copper supply will put pressure on copper prices.
Capacity additions in the copper industry are expected to extend beyond 2015. More than 6 Mt of new copper supply is expected to hit the markets by 2020. If copper demand fails to keep pace with the rising supply, copper producers could face hard times.